HIMALAYA CO LTD Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) This appeal filed by the assessee is against the order of the CIT (A) dated 12-9-1986 for the assessment year 1979-80 for which the previous year ended on 31-12-1978.

(2.) The assessment of the assessee for the assessment year 1979-80 was completed under section 143(3) on 29-10-1981 computing the total income at Rs. 96,189. Out of the total income so computed, there was business income of Rs. 65,079 and dividend income of Rs. 31,360 after allowing the deduction under section 80M. In the course of the assessment, losses carried forward from earlier years were not set off inadvertently. The assessee filed petition under section 154 on 1-3-1985 claiming set off of the losses carried forward. The ITS on scrutiny of the assessment records of assessment years 1976-77 and 1977-78 found there were unabsorbed business losses if Rs. 26,623 and Rs. 87.752 respectively. Since there was a mistake apparent from the record, he passed an order under section 154 on 16-7-1985 wherein he allowed set off of the business losses of earlier years to the extent of business income of the assessment year 1979-80 as under :- <FRM>JUDGEMENT_71_LAWS(CAL)12_1988(1).html</FRM>

(3.) Before the CIT (A) the assessee contended that although dividend income was assessable separately under the head Other sources, yet since the assessee was a dealer in shares, the dividend income had to be treated as ;business income; for the purpose of set off of earlier years business losses. He relied on the cases of United Commercial Bank Ltd. v. CIT, 1957 32 ITR 688(SC) , CIT v. Cocanada Radhaswami Bank Ltd., [1965]57ITR306(SC) and CIT v. Chugandas & Co., [1965]55ITR17(SC) . The CIT (A) noted that the Supreme Court in Cocanada Radhaswami Bank Ltd.s case (supra) and Chugandas & Co.s case (supra) laid down that although the interest on securities is to be assessed separately under a specific head, year if the assets the income by way of interest from securities does not cease to be part of the income from business and hence liable to be set off against the losses of earlier years. He found that the assessee was dealing in shares and the shares which produced the dividend income were held by the assessee as its stock-in-trade. He was of the opinion that the dividend income should be considered as assessees business income for the purpose of being set off against the business losses of assessee brought forward from earlier years. However, he found a hitch in the said regard in view of the amendment brought to section 73 with effect from 1-4-1977. He held that the assessee-company could not be considered as an investment company as defined in section 109, since the major portion of its income was constituted by business income. He also held that it cannot be considered as a company the principal business of which was the business of banking or the granting of loans and advances. He was of the opinion that the assessee-company was squarely hit by the Explanation to section 73 of the Income-tax Act, 1961. He also noted that in the assessment year 1977-78 and the following assessment years the business losses of the assessee arose out of its business of purchase and sale of shares and hence in accordance with the said Explanation, the said business loss has to be considered as a business loss incurred in a speculative business. He also held that the dividend income of the assessment year 1979-80 could be considered as business income of non-speculative business and would be available for being set off against the brought forward losses of earlier years of a non-speculative business only. He, therefore, directed the ITO to examine the issue from the angle of Explanation to section 73 and to find out whether brought forward losses of any earlier year in respect of a non-speculative business were available for set off against the dividend income of the assessment year 1979-80. If any such brought forward loss of such non-speculative business of earlier years be available, the said loss was to be set off against the dividend income of 1979-80 assessment year to the extent available of such losses. If otherwise, dividend income has to be assessed separately and any brought forward loss of a speculative business of earlier years is still to be carried forward in accordance with the provisions of section 73. Dis-satisfied with the order of the CIT (A) the assessee preferred the present appeal before the Tribunal.